Category management is an engineering project - Column

Discount Store News, August 21, 1995 by Tim Bush

Good news. Your 2:00 p.m. meeting was cancelled and you find yourself with an extra half hour to tackle that endless "to do" list, which undoubtedly includes activities like returning vendor calls, checking on manufacturer back orders and verifying an out-of-stock product.

If we could briefly escape from these day-to-day management tasks, we might spend some time learning about new technology, talking to customers or developing a strategic plan for the next decade. Although these functions may not be as time-critical as determining why your pharmacy depleted its inventory of generics again, implementing category management can be a mission-critical exercise.

As with any re-engineering initiative, category management requires profound changes in corporate culture and processes. Many industry practices were never "engineered" in the first place--they simply evolved from internal economies of scale, empire building, corporate politics, available technology, tradition, geographic distance and a lack of understanding of consumer preferences.

For instance, the inefficiencies of forward buying and diverting have long been recognized from a modern logistics standpoint. However, the practices will persist for as long as hundreds of companies in the consumer packaged goods distribution network (as well as retailers themselves) profit from selling product purchased "on deal."

Although efficient promotions and efficient replenishment are commonly cited as corporate goals, it's time companies acknowledge that implementing category management requires more than learning the vocabulary and printing new business cards. Effective category management demands the integration of disciplines previously confined to specific departments, including sales, promotions, space management, pricing, new product R&D and inventory management. In effect, functional boundaries dissolve and the category manager is the systems integrator orchestrating all activity.

If category managers are the conductors of change, information is the instrument, enabling knowledge-based decision making. However, each company within the supply chain has proprietary access to a limited scope of information. Retailers capture silo information about activity in their stores, from sales movement to customer buying behavior, through a combination of scanner data, frequent shopper programs and primary research methods.

Manufacturers access a broader view of the category, including the competitive environment, cross-channel picture and overall market dynamics. Finally, information partners like A.C. Nielsen provide more detailed consumer geodemographic profiles that define buyer loyalty and track purchasing behavior across channels. The information partner can also provide display and feature information to determine the impact on sales.

By pooling information from all of these sources category managers can gain a comprehensive view of the category.

Old-school retailers counted turns, service and sales volume. New-school retailers turn to a new roster of category management performance measures: customer satisfaction, transaction amount and gross margin; category growth and profit; cost reductions in goods and inventory; and improvements in market share and supplier relationships. Building a category management program based on these measures takes careful thought, planning and effort, but progressive retailers understand that it is a long-term solution to today's most immediate industry issues.

Tim Bush is senior vice president of the ECR and Retail Services Division at A. C. Nielsen, 1-800-727-3045.